REBA Solution
Fenwick’s Insurtech and Blockchain & Cryptocurrency practices leveraged our deep knowledge of the blockchain ecosystem and insurance industry to develop a new insurance solution for decentralized autonomous organization (DAOs) and other crypto-native organizations that have been left out of traditional insurance markets. Fenwick assists DAOs in establishing this insurance solution, which we refer to as “REBA.” The REBA solution1 utilizes a corporate structure that protects not only founders, directors, officers, and other key figures in DAO governance, but also token holders who participate in DAO governance.
REBA addresses the growing risks associated with DAOs running multimillion-dollar businesses in an uncertain and litigious regulatory environment. Some DAOs have established litigation defense funds to hedge these risks, but these accounts are a temporary solution—and ultimately, a poor substitute for insurance. Defense funds have extremely limited defenses or protection from creditors, regulatory action, asset freezes, forfeiture orders, or bankruptcy. They are often held in the DAO’s governance token or another related asset, which is highly correlated with the risks they aim to protect against. Further, depending on the terms of the defense fund and the relevant jurisdictions, these funds could run afoul of laws against providing unlicensed insurance.
- Total unavailability of insurance coverage for token holders in the commercial insurance markets
- Risks associated with commonly marketed “solutions” like defense funds
- Hesitancy of token holders to participate in DAO governance, given downside risk and lack of protection
- Total unavailability of insurance coverage for token holders in the commercial insurance markets
- Risks associated with commonly marketed “solutions” like defense funds
- Hesitancy of token holders to participate in DAO governance, given downside risk and lack of protection
- Provides jurisdictional diversity with a structure that is separate from the DAO and has legally recognized and proven statutory protections from creditors, regulatory action, asset freeze, forfeiture orders, or bankruptcy of the DAO
- Diversifies DAO treasuries by providing the option to invest in cash and other assets that are not directly correlated with the risks they insure
- Allows for the DAO to earn investment income, and based on the structure, can generate profits for the DAO
- The D&O type coverage provided to token holders incentivizes token holders to participate in governance
- Provides worldwide insurance coverage for token holders, subject to anti-money laundering, counterterrorism, or other similar obligations
- Provides jurisdictional diversity with a structure that is separate from the DAO and has legally recognized and proven statutory protections from creditors, regulatory action, asset freeze, forfeiture orders, or bankruptcy of the DAO
- Diversifies DAO treasuries by providing the option to invest in cash and other assets that are not directly correlated with the risks they insure
- Allows for the DAO to earn investment income, and based on the structure, can generate profits for the DAO
- The D&O type coverage provided to token holders incentivizes token holders to participate in governance
- Provides worldwide insurance coverage for token holders, subject to anti-money laundering, counterterrorism, or other similar obligations
1The REBA Solution utilizes an insurance company that is incorporated in Bermuda and is a Class 3 registered insurer under the Insurance Act 1978 and Related Regulations as amended and is regulated by the Bermuda Monetary Authority. Fenwick & West LLP provides legal support in connection with the establishment of coverage through a separate account. Statements about coverages provided are illustrative and for general information only. This information is not an offer to sell insurance.